OGJ Newsletter

GENERAL INTEREST Quick Takes

ConocoPhillips adds to budget cuts, plans 225,000 gross b/d curtailment  

In response to the oil market downturn, ConocoPhillips will cut an additional $1.6 billion from its 2020 operating plan capital expenditures budget, bringing the current estimate to $4.3 billion. Cuts will be primarily focused on operations in the US Lower 48, Alaska, and Canada.

Including its Mar. 18 reduction of $700 million, the company has cut operating plan capital expenditures by $2.3 billion, or 35% compared its original guidance (OGJ Online, Mar. 18, 2020).

Operating costs will be cut by $600 million, representing roughly 10% of the initial 2020 guidance, bringing the current estimate to $5.3 billion. Reductions were sourced from lease operating expenses, general and administrative costs, and foreign exchange impacts.

Production in Canada and the Lower 48 will be curtailed until market conditions improve, the company said. By May, at the Surmont oil sands project in the Athabasca region of northeastern Alberta, the company expects to reduce production by 100,000 b/d of oil gross to 35,000 b/d of oil gross.

Beginning in May, the company will begin curtailing production across its Lower 48 region. The company has recently focused on the Permian basin, Eagle Ford, and Bakken regions. Initial cuts of 125,000 b/d of oil gross are expected. Curtailment decisions will be made on a month-to-month basis and are subject to operating agreements and contractual obligations.

The curtailments represent 200,000 boe/d net to the company.

The company’s share repurchase program and further guidance have been suspended.

Pharos Energy no longer evaluating Shell Western Desert acquisition  

Pharos Energy PLC said an acquisition of Shell Eqypt NV’s Western Desert assets in Egypt is unlikely to be in shareholders’ best interests given current market conditions and it is no longer evaluating the opportunity.

The company confirmed Mar. 6 that it was in the preliminary stages of evaluating acquisition of the Royal Dutch Shell PLC affiliate’s upstream portfolio as part of a consortium.

In October 2019, Shell Egypt noted plans to market its onshore upstream assets in the Western Desert so that it could focus on growing its Egyptian offshore exploration and integrated gas business.

Santos to sell 12.5% interest in Barossa project to JERA 

Santos Ltd., Adelaide, has signed a letter of intent to sell another 12.5% interest in the Barossa-Caldita gas development project in the Timor Sea to JERA.

JERA already has a 6.1% interest in the Darwin LNG plant currently being supplied by gas from Bayu Undan field.

The agreement advances planned partner alignment between Darwin LNG and the Barossa joint ventures for the development of Barossa as backfill for Darwin LNG, Santos said.

The deal with JERA follows a recent agreement by Santos to sell a 25% interest in Darwin LNG to South Korean Barossa partner SK E&S (OGJ Online, Mar. 20, 2020).

After completion of the ConocoPhillips acquisition announced in October 2019 and sell downs to JERA and SK E&S, Santos will hold a 43.5% interest in Darwin LNG and a 50% interest in Barossa-Caldita fields (OGJ Online, Oct. 14, 2019).

Discussions with other parties continue for the sale of further equity in the Barossa project to bring ownership to about 40%.

The JERA deal is subject to negotiation and execution of a binding sale and purchase agreement along with completion of the acquisition of ConocoPhillips’s northern Australian and East Timor portfolio, as well as third party consents, regulatory approvals, and a final investment decision on Barossa development.

Exploration & Development Quick Takes 

OMV makes significant discovery off New Zealand 

OMV has made a ‘significant’ hydrocarbons discovery in the Taranaki basin off the west coast of the North Island. The Toutouwai-1 wildcat, drilled to a total depth of 4,317 m some 50 km off the coast in 130 m of water, encountered several hydrocarbon-charged reservoir zones during drilling.

News comes following a premature end to the company’s 2020 drilling program offshore New Zealand because of the COVID-19 lockdowns. Because of the decision to cut the program short, no testing was done, but OMV said the potential is significant as there has not been a major find in the country since 2006 (OGJ Online, Apr. 3, 2020).

Toutouwai-1 has now been plugged and the semi-submersible rig COSL Prospector has left the region.

OMV and its JV partners, Mitsui E&P Australia and Sapura, will study the well logs and carry out additional work to better understand the potential for commercial viability.

New Zealand has less than 11 years of natural gas reserves remaining at current demand rates. If confirmed, the discovery will provide a boost to industry and the economy.

Baron Oil, partners relinquish Inner Moray Firth license  

Baron Oil PLC and its joint venture partners have relinquished License P2470 in the Inner Moray Firth (IMF), part of the UK Continental Shelf.

The license includes Blocks 11/23, 11/24c, and 11/25b surrounding the Wick prospect and containing the small Knockinnon oil discovery. The license was applied for before results were known of the 1/24b-4 Wick well, drilled at the beginning of 2019. The dry well subsequently downgraded prospectivity of the blocks. The modest work commitment on the license consisted of a small volume of 3D seismic reprocessing, which has been completed. Results were not encouraging, and the license was relinquished effective Mar. 31.

License P2478, over Blocks 12/27c, 17/5, 18/1, and 18/2, contains the Dunrobin prospect which consists of three large shallow Jurassic rotated fault blocks mapped mostly on 3D seismic data within a single culmination with direct hydrocarbon indicators. The lowest closing contour covers 40 sq km with 172 MMboe Pmean unrisked prospective resource estimate, with upside recoverable potential of about 400 MMboe (P10). Additional Pmean unrisked prospective resource for the smaller Golspie prospect is 23.5 MMboe, also contained within the license. These resource estimates are non SPE-PRMS compliant recoverable prospective resources for the Jurassic sands primary target. Both prospects are defined by existing 3D seismic. Supporting 2D seismic and reprocessing is underway. There is no current drilling commitment on these blocks, and the license must be relinquished before September 2023 if a well has not been drilled.

Corallian Energy Ltd. is operator of License P2478 with 45% interest. Partners are Baron Oil (15%) and Upland Resources (UK Onshore) Ltd. (40%).

SDX Energy expects tie back of Sobhi discovery  

SDX Energy PLC expects a commercial gas and condensate discovery at the SD-12X well (Sobhi) at South Disouq, Egypt, will tie back to an existing gas processing plant in 2021.

The SD-12X well reached 7,245 ft MD, encountering top of Kafr El Sheikh (KES) sands at 6,506 ft MD. A net 108 ft of high-quality gas-bearing sands were found near the base of the KES formation with an average porosity of 20%, representing about 24 bcfe gross recoverable gas and condensate resources by management’s estimates, in excess of the minimum commercial volume of about 8 bcfe. The drilling rig is completing the well and preparing for testing. 

A 5.8-km tie-in to the Ibn Yunus-1X location is expected to move Sobhi production through an existing flow line connected to the South Disouq central processing facility. The discovered resources potentially require only one further development well, perhaps not necessary for another 2-3 years, the company said. 

SDX Energy PLC has 100% working interest in the well and 55% interest in the South Disouq exploration permit.

Drilling & Production Quick Takes 

Aker BP starts Phase 2 production from Aerfugl, Norwegian Sea 

Aker BP has started production from the first Aerfugl field Phase 2 well, 3 years ahead of the original schedule due to an available slot on one of Skarv’s subsea templates. Collaboration with Baker Hughes to reuse existing xmas trees was also “key to enable the accelerated phase 2 start-up,” said Tom Storvik, project manager for Aerfugl field development. The remaining two Phase 2 wells will come on stream in 2021.

Field development is planned in two phases. Phase one, which develops the southern part of the field, consists of 3 wells and is expected to start-up late this year. Phase two, in the northern part of the field, was originally planned for start-up in 2023. In June 2019, it was reported the first of the three wells planned for the second phase was to start in June of this year through use of existing infrastructure and that the other two wells were expected to start production in September 2021 (OGJ Online, June 4, 2019).

Aerfugl is primarily a gas reservoir that extends over 60 km and is 2-3 km wide holding a total of around 300 MMboe. Production will be tied into the Skarv FPSO for treatment, which lies 210 km west of Sandnessjøen in Nordland county. The gas will be transported to the Kårstø terminal in Rogaland through an 80-km pipeline connected to the Åsgard transport system.

In other areas, Aker BP has stopped all non-sanctioned projects as a response to the change in the market situation, including the Hod redevelopment project in Valhall which had been close to sanctioning.

Aker BP is operator at Aerfugl with 23.835% interest. Partners are Equinor (36.165%), Wintershall DEA (28.0825%), and PGNiG (11.9175%).

ONGC achieves first gas at offshore KG 98/2 block 

India’s state-owned Oil and Natural Gas Corp. (ONGC)  achieved first gas at 98/2 Block in Krishna-Godavari (KG) basin, offshore India, producing 14 months after work began. First gas involved tie-back of a single well in 4,265-ft water depths to existing Vashishta field infrastructure, the company reported early April.

ONGC awarded the contract for combined subsea work on its KG-DWN-98/2 deepwater development off eastern India to a consortium of Baker Hughes, McDermott International Inc., and L&T Hydrocarbon Engineering, a subsidiary of Larsen & Toubro.

The $1.69-billion package included supply of all subsea production systems, including 26 deepwater trees, and the installation of subsea umbilicals, risers, and flowlines in 984-10,500 ft of water. Baker Hughes agreed to provide subsea hardware and precommissioning services. McDermott provided pipelay and construction vessels and engineering, procurement, construction, and installation services. L&T Hydrocarbon Engineering coordinated local work and services.

The well is the deepest opened by ONGC. Peak production rates are estimated at 16 million standard cu m/day of natural gas and 80,000 b/d of oil (OGJ Online, Oct. 4, 2018).

Cimarex cuts additional 2020 capital; curtails 30% of May volumes 

Cimarex Energy Co., Denver, expects a 55-60% reduction in its 2020 capital investment program from its original guidance of $1.25-1.35 billion due to the continued weakness in oil prices. The company has deferred completion activities and will drop all but one drilling rig in early May. The company has curtailed 30% of its volumes for the month of May.

In March, the company noted plans to cut 40-50% from its original capital investment program, then assuming a $30/bbl WTI price (OGJ Online, Mar. 18, 2020).

Additional details are expected as part of the company’s first quarter earnings release on May 6.

Petrobras begins suspending operations at 62 platforms 

Petrobras expects a production cut of 23,000 b/d as it begins suspending operations at 62 platforms in shallow water fields in the Campos, Sergipe, Potiguar, and Ceará basins. The platforms—active in sales processes—were deemed uneconomic at current oil prices, the company said.

The action is part of initiatives announced Mar. 26 to cut 200,000 b/d (OGJ Online, Apr. 1, 2020).

Of the platforms, 80% are uninhabited. Employees on inhabited units will relocate to other Petrobras organizational units, the company said.

PROCESSING Quick Takes 

ADNOC cancels contracts for Abu Dhabi gas mega project 

Abu Dhabi National Oil Co. (ADNOC) has cancelled two contracts previously awarded to Petrofac Ltd. subsidiary Petrofac Emirates LLC and a joint venture of Petrofac and Sapura Energy Bhd. to provide engineering, procurement, and construction (EPC) for ADNOC’s Dalma gas development project 90 km northwest of Abu Dhabi City, UAE, a key part of the Ghasha Concession portfolio of projects encompassing Hail, Ghasha, and Dalma ultra-sour gas fields in the Emirate of Abu Dhabi.

Upon receiving notice of termination of the contracts, Petrofac is now committed to working with ADNOC over the coming weeks to explore alternative options to deliver this project in a way that supports the operator’s strategic objectives within the current challenging environment, the service provider said on Apr. 16.

Awarded in February 2020, the two EPC contracts, which had a total combined value of more than $1.65 billion, were to cover EPC services—including novated long-lead items, transportation, offshore installation, and commissioning—for Dalma gas field development, as well as offshore packages at Arzanah island and surrounding offshore fields about 140 km off Abu Dhabi’s northwest coast.

As part of the first $1.065-billion, 33-month, lump-sum contract, Petrofac was to provide EPC services for gas processing installations at Arzanah island, including inlet facilities with gas processing and compression units, power generation units, utilities, and other associated infrastructure.

Under the second 30-month, lump-sum contract—valued at $591 million—the Petrofac-led JV with Sapura Energy was to deliver EPC services for three new wellhead platforms, removal and replacement of an existing topside, new pipelines, subsea umbilicals, composite, and fiberoptic cables.

Scheduled to be completed in 2022, work under both contracts was to enable the Dalma gas development project—which is central to ADNOC’s strategic objective of enabling the UAE’s gas self-sufficiency—to produce around 340 MMcfd of natural gas.

The Hail, Ghasha, and Dalma ultrasour gas development project was to tap into the Arab basin, which is estimated to hold multiple trillions of standard cubic feet of recoverable gas, according to ADNOC’s website. ADNOC also expected more than 120,000 b/d of oil and condensates to be produced when the project was fully on stream.

Calumet maintains refining operations 

Calumet Specialty Products Partners LP is maintaining refining operations to continue maximizing diesel production above gasoline, with limited disruptions to specialty and fuels production sites across the supply chain despite evolving demand patterns amid the coronavirus (COVID-19) pandemic.

“[W]e have reconfigured our remaining fuels assets such that gasoline output is only about 20% of systemwide crude runs, while the higher margin distillates (ultralow-sulfur diesel, jet fuel, and solvents) are 40% of crude runs during normal market conditions,” said Steve Mawer, Calumet’s chief executive officer.

Given the current unusual market conditions and uncertain demand landscape, however, Calumet’s operations are equipped to continue stepping gasoline production lower while retaining diesel output, if necessary, according to Mawer.

“For example, our [30,000-b/d refinery in Great Falls, Mont.] can sequentially reduce gasoline output to zero without cutting crude run[s] or diesel production at all,” said Mawer.

Calmuet did, however, revise its capital budget guidance for 2020 lower to $50-60 million from an original guidance of $80-90 million.

Alongside the Great Falls refinery, Calumet’s major refining business also includes its 60,000-b/d refinery in Shreveport, La. The company also operates a series of smaller specialty-product manufacturing sites in western Pennsylvania, Texas, New Jersey, and eastern Missouri.

ENOC nears commissioning of Jebel Ali refinery expansion project 

State-owned Emirates National Oil Co. (ENOC) of Dubai is nearing completion of subsidiary ENOC Processing Co. LLC’s more than $1-billion Jebel Ali condensate refinery expansion project (OGJ Online, Apr. 11, 2017; Aug. 18, 2016).

The expansion, which included the addition of new units and infrastructure to increase the refinery’s processing capacity to 210,000 b/sd from 140,000 b/sd, has completed final testing, TechnipFMC PLC said in a post to its official LinkedIn account.

The service provider, which provided engineering, procurement, and construction services for the expansion’s new 70,000-b/sd condensate processing train, LPG-naphtha hydrotreater, isomerization unit, kerosine hydrotreater, and diesel hydrotreater, did not disclose a specific timeframe for official commissioning of the project (OGJ Online, Sept. 19, 2016).

Alongside playing a key role in helping ENOC to meet UAE’s growing domestic demand for energy and becoming self-sufficient in domestic fuels, the proposed refinery expansion also forms part of the state-run firm’s commitment to increase its slate of oil products available for export to international markets.

Following full commissioning—which previously was scheduled for startup in fourth-quarter 2019—the expanded Jebel Ali refinery will be able to produce Euro 5-quality gasoline, jet fuel, and diesel to help meet rising domestic demand for fuel in accord with Dubai’s national plan for growth through 2021.

TRANSPORTATION Quick Takes 

Qatar Petroleum signs LNG carrier construction contract  

Qatar Petroleum agreed to reserve LNG ship construction capacity with Hudong-Zhonghua Shipbuilding Group Co. Ltd. (Hudong), a wholly owned subsidiary of China State Shipbuilding Corp. Ltd. (CSSC) for its future LNG carrier fleet requirements, including those of its ongoing North Field expansion projects. Pursuant to the agreement, a significant portion of Hudong’s LNG ship construction capacity will be reserved for Qatar Petroleum through the year 2027.

Hudong will build 174,000-cu m carriers to a design customized by CSSC for Qatar. The value of the contract is estimated at $3 billion out of a total anticipated spend by Qatar for new carriers of $10 billion.

North Field expansion projects will increase Qatar’s LNG production capacity to 126 million tonnes/year (tpy) from 77 milion tpy.

Qatar Petroleum in 2019 issued an invitation to tender for construction of the LNG carrier fleet for its North Field expansion projects. The invitation expected initial delivery of 60 LNG carriers, with the potential to exceed 100 new carriers over the next 10 years (OGJ Online, Apr. 22, 2019).

TAP to market gas capacity through Prisma 

Trans Adriatic Pipeline (TAP) has agreed to market its future natural gas transportation capacity through the Prisma European Capacity Platform. TAP’s initial capacity will be 10 billion cu m/year (bcmy), expandable to 20 bcmy. Prisma is the major marketplace in Europe for booking and trading gas capacity, connecting gas markets of 19 European countries.

TAP is more than 94% complete and expects to start commercial operations by end-2020. The pipeline will transport natural gas from Shah Deniz II field in the Azerbaijani sector of the Caspian Sea to Europe. The 878-km pipeline connects with the Trans Anatolian Pipeline at the Turkish-Greek border in Kipoi, crossing Greece, Albania, and the Adriatic Sea, before coming ashore in southern Italy.

TAP’s shareholding is comprised of BP (20%), State Oil Co. of the Azerbaijan Republic (SOCAR, 20%), Snam (20%), Fluxys (19%), Enagás (16%), and Axpo (5%).

Ineos postpones Forties system maintenance  

Ineos Forties pipeline system (FPS) has delayed its planned summer shut down between Unity platform and landfall at Cruden Bay, northeast Scotland, in the face of the COVID-19 pandemic. Planned to begin in June but delayed in March to August or later, the closure is now expected in the spring of 2021 (OGJ Online, Mar. 25, 2020).

The decision is in response to further requests from customers in the face of ongoing government restrictions due to the coronavirus pandemic, the company said Apr. 7.

Pin Oak loads first crude cargo at new Corpus Christi dock 

Pin Oak Corpus Christi LLC has received the first vessel at its newly commissioned Oil Dock 14 at the Port of Corpus Christi. The new dock, with loading rates in excess of 40,000 bbl/hr, can accommodate tankers up to Suezmax class (~1-million bbl).

Panamanian-flagged Pacific Dawn was the first tanker loaded. Built in 2005, Pacific Dawn has recently been in service between Mexico and the US Atlantic Coast.

Construction of Dock 14 was a joint effort between the Port of Corpus Christi Authority and Pin Oak Terminals. The port authority built the dock and mooring structures and handled dredging while Pin Oak installed the topside handling equipment, storage, and common-carrier pipeline interconnects.

Pin Oak Terminals is a joint venture between Dauphine Midstream LLC and Mercuria Energy Group Ltd.